Alaska legislators faced with tall task on budget
the idea of any tax and is considered likely to veto SB 92 if it passes the Legislature. Senate leaders are meanwhile warning of widening budget deficits out to FY 2028 after a recent brief- ing by the nonpartisan Legislative Finance Division. Oil production and prices are expected to remain flat or dip slightly. A bright spot in the revenue pic- ture is the projected increase of the Permanent Fund’s annual budget contribution from $3.65 billion this year to $4 billion in 2028. Still, state operating costs are rising, and schools, among others, are pushing for funding increases to offset inflation. Overall, for the current FY2025 state budget year, which ends June 30, a deficit of $140 million is es- timated. For FY2026, the budget which legislators are preparing and that starts July 1, a $400 million deficit is seen. The two-year deficits total about $540 million. This is the amount legislators will have to find this spring. In a February Senate briefing, Hoffman said the Senate Finance committee is working with an as- sumed state capital budget of $300 million, mostly for construction; $29 million for new state employee labor contracts which are typically agreed in late spring; a contingency for 2025 wildfire suppression and a Permanent Fund Dividend following the “75-25” split as last year (75% of the annual payment from the Fund to the state budget and 25% to the dividend).
on SB 92. The legislation sets up a new state corporate income tax for oil and pipeline companies organized as “S” corporations rather than “C” corporations, the structure used by most large businesses. S corporations are exempt from the current state corporate income tax because the federal tax liabil- ity is instead held by shareholders of the corporation, which are typi- cally a small number of individuals. That’s in contrast with C corpora- tions where the state corporate in- come tax is paid by the business. Because Alaska has no personal state income tax, the shareholders wind up paying no tax, thus creat- ing a loophole. The bill is focused on Hilcorp Energy, a major Alaska oil producer that is organized as an S corporation. Yundt’s bill is a bit awkward as the first legislation by a conservative new senator but he argues it as a fairness measure in “leveling the playing field” between Hilcorp and other major Alaska oil producers that are C corporations, and which pay state corporate in- come taxes. Other new oil tax bills may be in the works. In a briefing by Senate majority leaders in late February, Sen. Lyman Hoffman, D-Bethel, said new revenues are being discussed in the majority caucus but a state in- come or sales tax is not being con- sidered. That leaves taxes on oil to fill revenue gaps. Another idea broached by Sen. Bill Wielechowski, D-Anchorage, is a change in oil production tax credits allowed to petroleum producers un- der the state oil and gas production tax. Gov. Mike Dunleavy is cold to
Lower revenue, rising costs lead to $500M shortfall Legislators in Juneau are grousing about money. There’s not enough of it this year. Oil and gas revenues are down while the Permanent Fund’s annu- al contribution to the budget is up, which takes out some of the sting. But costs also are rising. Overall, the state faces a $500 million defi- cit for the current budget year, Fiscal Year 2025, and upcoming FY 2026, which begins July 1. Lawmakers have to find the funding to plug the hole by July because the state can’t operate without a balanced budget. Given that, there’s talk in Juneau about new revenue, meaning taxes. Not surprisingly, many in the Cap- itol are turning to taxpayers who can’t vote — oil and gas companies. Surprisingly, the first new reve- nue bill getting serious attention in the new Legislature is sponsored by Mat-Su’s Sen. Rob Yundt, a conser- vative Republican. Yundt’s fellow conservatives in the Senate don’t back the legislation, Senate Bill 92. Sen. Mike Shower, R-Mat-Su, said he opposes it, but leaders in the Senate’s majority coalition led by Democrats, like the idea. Yundt’s bill could raise $180 million next year, according to the Department of Rev- enue. That could be a help in filling the projected deficit, some legisla- tors say. Hearings began in the Senate Re- sources Committee in late February
— Tim Bradner
THE LINK: MARCH 2025
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